Consumers and the UK financial system are being put at “serious harm” by the government and the Bank of England’s failure to grasp the risks posed by artificial intelligence, a powerful parliamentary committee has warned.
In a new report, Treasury councilors criticize ministers and city regulators, including the Financial Conduct Authority (FCA), for taking a “wait-and-see” approach to the use of AI across the financial sector.
This is despite pressing concerns that the technology’s rapid growth could disadvantage already vulnerable consumers and even trigger a financial crisis if AI-driven companies were to make similar financial decisions in response to economic shocks.
More than 75% of businesses in the city are now using AI, with the biggest adopters including insurance companies and international banks. It is also used to automate administrative tasks and support core operations such as processing insurance claims and assessing customer creditworthiness.
However, the UK has failed to develop specific laws and regulations to govern the use of AI, with the FCA and Bank of England arguing that general rules are sufficient to ensure positive outcomes for consumers. That means companies will have to decide how to apply existing guidelines to AI, which lawmakers worry could put consumers and financial stability at risk.
Treasury Committee Chair Meg Hillier said: “It is the responsibility of the Bank of England, the FCA and the government to ensure that the safety mechanisms within the system keep pace.” “Based on the evidence we have seen so far, we cannot be confident that our financial system is prepared in the event of a major AI-related incident, and that is concerning.”
The report warned that there is a lack of transparency about how AI impacts financial decision-making, which could impact vulnerable consumers’ access to loans and insurance. It is also unclear whether data providers, technology developers or financial companies will be held responsible if a problem occurs, he said.
Lawmakers said AI would also increase the potential for fraud and the prevalence of unregulated and misleading financial advice.
From a financial stability perspective, lawmakers said the increased use of AI is increasing cybersecurity risks for companies and leaving them overly dependent on a small number of U.S. tech companies, including Google, for essential services. Its introduction could also amplify “herd behavior” and lead companies to make similar financial decisions during economic shocks, putting them “at risk of financial crisis.”
The Treasury Board is now asking the regulator to take steps, including launching a new stress test to assess the city’s preparedness for AI-driven market shocks. Lawmakers also want the FCA to publish “practical guidance” by the end of the year clarifying how consumer protection rules apply to the use of AI and who is liable if consumers suffer any harm.
“By taking a wait-and-see approach to AI in financial services, the three authorities are exposing consumers and the financial system to potentially serious harm,” the report said.
The FCA, which is already “undertaking extensive work to help businesses use AI in a safe and responsible way”, said it would consider the report’s findings “carefully”.
A Treasury spokesperson said: “We are clear that we will strike the right balance between managing the risks posed by AI and unlocking its huge potential.”
It added that this includes working with regulators to “enhance our approach as technology evolves” and appointing a new “AI Champion” to cover financial services to “ensure we seize the opportunities presented by AI in a safe and responsible manner”.
A Bank of England spokesperson said: “We are already taking proactive steps to assess the risks associated with AI and strengthen the resilience of the financial system, including publishing detailed risk assessments and highlighting the potential impact of sharp falls in asset prices affected by AI. We will carefully consider the committee’s recommendations and respond fully in due course.”
